Luxury real estate falls into a unique category of upscale investment, much like fine art, classic automobiles or vintage wines. It is certainly not for everyone.
Investment in any of these categories requires specific market knowledge, an ability to judge the market correctly and react to trends, and the holding power to maintain the property until it’s the right time to trade or sell.
But for those investors who are knowledgeable about real estate in general and attuned to the specifics of a particular market, investing in luxury properties can be a smart decision, whether they choose to rent and hold, or resell at the first opportunity. Top-dollar real estate traditionally holds its value and continues to appreciate over time. However, a high price is not the prime determinant of true real estate value.
Any investor must perform serious initial research. In real estate, there are typically six areas that an investor should thoroughly investigate and assess:
Location, Location, Location
Every potential buyer knows that the right location is a crucial factor in property valuation. It should be obvious that a mansion in the midst of a decaying neighborhood does not represent good value.
Distinctive properties in prime locations, however, might be potential candidates for renovation or renewal, and should be evaluated in the context of potential return on initial investment in cases where a historic neighborhood has enjoyed a resurgence of popularity. Making a sound investment decision will depend on a lot of variables.
The Health of the Market
Consider the state of the overall real estate market as well as local market viability. Luxury real estate is always affected by national and international economic factors as well as local trends.
Potential investors must monitor these broad market trends as carefully as local conditions before making the decision to buy or sell, rent or refurbish. Long-distance investment in high-end properties can be risky unless investors consider the character of the unique neighborhood.
Rarity Can Be a Bonus
Unique luxury properties tend to hold their value better and appreciate faster under favorable market conditions. Therefore, as an investor, try to seek out properties with distinctive features and a wealth of desirable amenities.
One of the best ways to do this is to keep abreast of current and emerging trends by following market reports prepared by the Institute for Luxury Home Marketing (ILHM).
An example is beachfront property. Luxury homes and condominiums located in popular oceanfront or lakeside communities invariably hold their value and appreciate due to scarcity.
Again, it should be obvious that the upkeep on a high-end property will be higher than standard maintenance costs for a home on a small city lot. Whether the property is a horse-country estate on rolling acreage, a condo with 360-degree views situated in a resort community, or a chalet at a popular ski resort, the need for ongoing maintenance and repairs can substantially reduce potential profits, particularly for the investor who intends on renting property for short-term stays. Properties in a rental pool might have additional expenses that an investor must also carefully evaluate.
Consider the Financing Costs
Individual buyers and investment groups interested in luxury properties should both be aware of the fluctuating requirements set by lending institutions. Shopping for financing is a continuing process for any investor, and the costs of acquisition and maintenance are vitally important to the bottom line and lasting value of any investment.
It is always wise to consult with legal and financial advisers about long-term goals and investment requirements prior to beginning a search for luxury property.
Planning to Rent?
Dealing with tenants can be problematic for any real estate investor. And the potential for problems increases when wealthy tenants are involved. On the one hand, an investor may be spared any concern about missed rental payments, but renter expectations may be higher in terms of property maintenance, repairs, property finishes, amenities, or owner-provided services.
In any case, it is wise to have professionally-prepared contracts, to properly document all transactions, and to weigh options in an effort to prevent potential disputes.
The Benefits of ILHM Membership
Real estate professionals who are members of ILHM have a distinct advantage when dealing with high-end investors. Comprehensive analysis of 100 top markets, detailed reports and trend forecasts are routinely provided to affiliated agents in the United States and Canada. They are complimentary benefits of ILHM membership when training is completed.
Additional advantages include the ongoing ability to network with other members, an opportunity to earn the coveted CLHMS designation through coursework offered by the Institute, and complimentary access to podcasts and seminars on a wide range of real estate topics and trends. Members with documented sales performance in the top 10% of their market are eligible to earn this designation.
Founded in 2003, the ILHM is recognized globally as the premier independent authority in training and designation for real estate agents working in the luxury residential market. Membership is open to all licensed agents in the United States and Canada, regardless of firm or brand affiliation.